BAA faces a roasting from MPs on profits bonanza

At a hearing of the influential House of Commons Transport Committee, BAA's top brass headed by new chairman Sir Nigel Rudd and chief executive Stephen Nelson are expecting a roasting over the performance of the company's flagship airport at Heathrow.

Airlines such as easyJet, Britain's biggest carrier, will tell MPs they should question whether BAA should be allowed to increase charges to airlines - and their passengers - for the planned runway and terminal expansions at Heathrow and Stansted when it is already making so much money.

Speaking ahead of his appearance before the committee today, easyJet director Toby Nicol said there is a case for urgent reform of the rules that allow BAA's profitmaking ahead of any new major infrastructure investment decisions.

"There is something structurally wrong with the way that BAA is regulated which incentivises it to build, build, build," said Nicol, arguing that the fixed cost of capital that BAA has been granted by the Civil Aviation Authority has meant the company has been getting a 7.75% return on its infrastructure expenditure.

"Almost every penny that BAA spends, it is allowed to claw back from airlines and ultimately passengers," he said. "Security requirements have gone up - so it charges more. It has a summer of awful customer service so it is allowed to charge more, whereas most businesses facing BAA's reputation-problem would have to discountto get passengers through the door.

"With operating margins of 32.2%, BAA is making profits that would make Tutankhamun blush."

The MPs' inquiry into the future of BAA comes amid unprecedented scrutiny of the airport operator, whichowns Gatwick as well as Heathrow and Stansted.

The Competition Commission has launched its own investigation into whether the company should continue to own all three airports, which account for 92% of all passengers in and out of the capital.

MPs on the Transport Committee have previously lobbied for a break-up of the BAA monopoly, but for the past 11 years of Labour rule successive Transport Secretaries including current Chancellor Alistair Darling have refused to sanction a sell-off.

The Commission has also been investigating the pricing regulations of BAA set down by the CAA.

It ruled that BAA's guaranteed rates of returns should be slashed from 7.75% to 6.2% from next year but also judged that airlines should share the pain of new expenditure, giving the green light to a 70% increase in aircraft take-off and landing charges.

BAA, owned for the past 18 months by Spanish construction giant Ferrovial, has threatened not to go ahead with the planned building of a new Heathrow East terminal alongside the new stateofthe-art Terminal 5, which opens in March.

British Airways has been an archcritic of BAA's monopoly, with chief executive Willie Walsh calling for a break-up of the company. He has argued that competing airport owners at Heathrow and Stansted, rather than the concentration of power in the hands of BAA, would determine investment in new runways and terminals.